The UK economy could not be poised in a more dramatic position right now, and Home Secretary Theresa May has come up with a plan to wreck it.
Here is what’s going on:
- Employment rose to 74%, an historic record, and unemployment declined to a staggeringly low 5.1%. There are jobs for everyone, basically. It’s the best of times!
- The stock markets are going down worldwide. A lot of people think we are entering a global recession, with China, Asia and Europe all faltering at the same time. It’s the worst of times!
So what is the best strategy for the UK to make itself even richer — or weather the storm — depending on how you see the next few years unfolding?
In both scenarios, the strategy is the same, economists of both left and right agree: You want to improve “labour productivity,” which is the fancy academic term that refers to creating jobs that are higher paid and produce higher profits. A computer science researcher is more productive than a bartender because the engineer earns more money and the software she creates makes more profits, than pulling pints in a pub. To put it in real terms, the UK needs to be a nation of software coders rather than a nation of bartenders (even if the latter sounds like it might be more fun).
Mark Knickrehm, group CEO of Accenture Strategy, agrees. He told Business Insider yesterday, “31% of the UK economy can be attributed to some form of digital skills, capital or intermediate goods flowing through supply chains … There is not so much evidence of a drain of talent as a continuous struggle to attract the right digital skills.”
Theresa May, however, wants to make the struggle to attract those skills that much harder by creating a £1,000-a-year ($1,400), per person, tax on businesses that want to bring in high-skilled, or highly educated, workers from non-EU countries. In other words, if Mark Zuckerberg suddenly had an idea for a business that might become bigger than Facebook and he wanted to kickstart it out of his London office, Theresa May would fine him £1,000 a year for doing so.
Facebook might be an American company, but it employs about 400 people in London at an average salary of £210,000 a year. These are the jobs we want. Yet May wants to put up a financial barrier, and a bunch of paperwork, to make it harder. (Yes, the £1,000 levy is peanuts compared to tech salaries, but many small startups don’t have the admin staff, the HR people, the lawyers, or the time and energy to jump through the Home Office’s hoops. Those are the people who will be hit hardest in this plan.)
May’s plan is a response to Prime Minister David Cameron’s promise to reduce immigration generally, on the theory that British companies will be forced to employ British people instead. The levy will fund a British worker training program. This theory is turning out to be useless given that the UK is now technically at full employment, and has been for months. We have run out of British people to employ — they all have jobs already.
The issue of whether workers ought to have the right to travel freely, and offer their labour wherever they want, is one of those rare economic principles on which both right and left are in full agreement. No one on the left thinks workers should be restricted from travelling to another country to work. The capitalists agree: Barclays’ chief European economist Philippe Gudin published a report today noting that the migration of one million refugees into Germany over the last year is likely to boost the economy there. That is largely due to two factors, Gudin says. First, 86% of Syrian refugees have secondary or higher education degrees. Second, they are so poor they will spend 80% of the welfare benefits they receive. The multiplier effect from all that smart new labour, coupled with the new spending, “adds 0.6% to private consumption growth in 2016 and 0.36% in 2017,” Gudin estimates:
This notion — that immigration generally adds to economic growth — is not controversial among economists. That’s the way the economy works: the work of new workers adds value and demand, and then growth. If you shut the doors to new workers, you end up like Japan, whose decrepit economy has limped through three decades of near-zero growth precisely because its population is getting older, isn’t growing, and the Japanese have a deep-seated, long-standing dislike of immigration:
In fact, Britain was dangerously close to becoming like Japan until very recently. Labour productivity in the UK hit a wall in the UK between 2007 and 2012, and has only just started to get better. British workers added 0.5% per hour to their productivity in the last quarter measured by the Office for National Statistics:
If you want to keep that going — if you want workers to earn more, and for their work to produce more value and more economic growth — then the easiest way is to let in the smartest workers from elsewhere, and let them work.
If we were being economically rational, we might consider paying high-skilled workers to move here.
Apple founder Steve Jobs was the son of Syrian immigrants. Google founder Sergey Brin was born in Russia. We don’t know where the next Jobs or Brin is coming from, but we can guarantee that a £1,000 annual tax on being clever is more likely to make them skip Britain and go elsewhere.
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